AirAsia India plan may face queries at FIPB

AirAsia has said it will hold a 49% stake in the proposed joint venture with Tata Sons. Photo: Reuters

Updated: Tue, Mar 05 2013. 11 49 PM IST

Mumbai/New Delhi: The aviation ministry is likely to seek clarifications on the proposed joint venture between AirAsia Bhd and Tata Sons Ltd when the airline project comes up for clearance by the Foreign Investment Promotion Board (FIPB) on Wednesday.

Meanwhile, the venture is pushing forward with a recruitment drive and AirAsia’s Tony Fernandes said he had selected a chief executive officer (CEO), although his candidacy would have to be confirmed by the Tatas. He didn’t reveal the person’s identity.

FIPB is scheduled to discuss the $30 million proposal to set up AirAsia India.

“There are some key questions which they should have answered before seeking these clearances,” said an aviation ministry official who declined to be named. These relate to the definition of how the investments should be allowed, he said, while adding at the same time that these issues weren’t likely to be a deal breaker.

According to the department of industrial policy and promotion (DIPP), foreign airlines are being allowed to invest “in the capital of Indian companies, operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital”.

The ministry is likely to tell the FIPB meeting that the AirAsia-Tata proposal is neither an airline nor a company, said the official. “So where is the investment going to come in? It’s our job to tell them what is the process as far as civil aviation is concerned. They can take the law ministry’s views if they have a disagreement,” he said. However, “it’s no big deal”, the official said, adding, “The project is not going to be stopped but there could be procedural issues.”

The ministry is also likely to point out that the foreign direct investment (FDI) policy was relaxed in the DIPP note of 20 July, which made the case that FDI was required for existing debt-laden Indian airlines to get a new window of funding.

He said the Tatas should have first got a licence and then invited foreign investment. AirAsia declined to comment on the matter.

Former industry secretary Ajay Dua said, however, that FIPB can approve a foreign investment proposal before the company is incorporated in India.

“If they kill the Tata-AirAsia venture they will permanently put a stop to any FDI in Indian aviation,” said Mohan Ranganathan, a member of the government-appointed civil aviation safety advisory council. “If an airline with four-five aircraft is sending rival airlines and the aviation ministry in panic mode, it doesn’t speak well of our policy.”

Fernandes said on Tuesday that he had selected the head of the airline’s proposed joint venture in India, although he tweeted later that the Tatas would need to sign off on the choice. “I have selected our CEO for AirAsia India,” Fernandes tweeted.

AirAsia India has started approaching top aviation executives in India as it puts together a management team, Mint reported Monday citing two people familiar with the matter.

AirAsia representatives declined to comment. Mint could not contact Fernandes.

AirAsia has said it will hold a 49% stake in the proposed joint venture, Tata Sons will own 30% and Arun Bhatia of Telstra Tradeplace Pvt. Ltd will hold the rest. In February, Fernandes had said his proposed airline will focus on the Indian domestic market, with Chennai as the main hub. The AirAsia venture plans to start flights at the year-end with three-four planes and an initial investment of about $30 million. It will operate from Chennai and focus on providing domestic connectivity to smaller cities, a statement by the Malaysian airline said last week.

Fernandes is of Indian descent; his father was from Goa.

The proposed venture marks the return of the Tata group to aviation. State-run Air India Ltd emerged from Tata Airlines, which began flights in the 1930s. The government nationalized the airline in 1953.